One Year Later: Why California’s Cannabis Industry is Falling Short of Expectations

What Other States Can Learn From California's Mistakes

California was the sixth state to legalize recreational marijuana, following Colorado, Washington, Oregon, Nevada, and Alaska. With its first year behind it, the once-promised thriving industry is looking bleak, a convoluted issue that has led to a variety of broken promises and let-downs. When voters passed Proposition 64 to legalize the recreational use of cannabis, officials predicted roughly 6,000 cannabis shops to be licensed in California within the first couple years. One year later, we are looking at a state with only 547 temporary and annual licenses for marijuana dispensaries, which doesn’t come close to lining up with the original prediction. According to the LA Times, state officials predicted $630 million for marijuana sales, but the January 1st tax collection from this year shows around $471 million, which is drastically less than the projected number.

Competing With The Black Market

California had no shortage of marijuana before the state passed Proposition 64, which is part of the reason so many legal retailers are failing. The black market continues to flourish tax-free, while licensed business owners are jumping through hoops to get their shops going due to extensive overregulation. Many residents still get their weed cheaper and tax-free from someone else, but illegal unregulated pot shops have been another huge factor in California’s anticlimactic year of legal cannabis.

Marijuana retailers operating legally in the state of California lost plenty of business because illegal, tax-free marijuana shops overshadowed the regulated stores that are trying to play by the rules. Shops would open up around the state, unlicensed but often appearing to be a regulated cannabis shop on the surface. Many bought marijuana from these shops unaware they were not licensed, while others continued to shop there regardless because of the cheaper prices. Prices at legal marijuana shops in the state are substantially higher than prices in the illegal shops, because by law they must include the excise, gross receipts, and sales tax, which can increase the price of legal weed up to 45 percent, according to the Los Angeles Times. Since many of these shops are unrecognizable from licensed shops, running the operation is a gamble that could get illegal business owners in trouble. The state has worked to crack down on these shops, but they continue to exist and compete with licensed retailers in California.

iStock / razyph

Business owners looking to get their shop licensed and ready to operate legally faced a long battle from the start. To even get a permit, merchants had to deal with broken links, continuous dates being pushed back, and an overall lack of preparedness, setting business owners behind the illegal market once again. The disadvantages faced by those trying to open legal pot shops was discouraging for those trying to make a living off of the new industry. But in a state where the illegal cannabis industry has flourished so long, keeping above water while cheaper, tax-evading businesses thrive is a struggle.

Overcoming Local Laws and Red Tape

Heavy regulation and the booming illegal market are not the only things hindering California’s fabled thriving cannabis industry. The state gives authority to local governments to elect their own rules about the plant, and these rules vary vastly from town to town. Many cities have banned marijuana outright, while others have different provisions on how it can be used. This is confusing in itself, as state laws can be overridden by local laws, which can also conflict with county policies.

There are even some areas where all marijuana businesses are prohibited, and residents cannot grow the plant outside. According to the OC Register, over 60 cities in the state of California have banned the use of marijuana entirely. It’s no surprise many areas took the conservative route to ban marijuana altogether, considering the number of residents making a stink about the stench, which only divides the state even more, making it difficult to come to useful agreements.

iStock / notwaew

Luckily it has been ruled that cities cannot ban the delivery of recreational marijuana, making it possible for residents of areas that have outlawed marijuana to legally obtain some. This ruling came after opposition from residents and even police chiefs who believed legal delivery services lack regulation and make the state a more dangerous place, according to AP News. On the other side, supporters argued that people who rely on marijuana for medical reasons may not be well enough to travel to an area where they can legally obtain their relief, and legal marijuana delivery could open the doors for a more comfortable life. While opponents tried to make marijuana deliveries appear damaging for the state, the Bureau of Cannabis Control clarified that businesses may deliver to any part of California.

Lessons Learned from Year One

The first year of legal marijuana in California was a frustrating bust for many business owners and consumers. While merchants tried to get their shops up and running, they faced numerous setbacks which allowed the illicit market to thrive instead. Consumers are not happy with the excessively high taxes which make the product significantly more expensive than what they can get down the street at an unlicensed shop. Projections for the flourishing market all fell short with numbers significantly less than promised by state officials.

It’s clear that California has a long way to go before getting their legal cannabis industry to a healthy status. Before it can flourish, the state must streamline its licensing process to get legal business owners up and running in a timely fashion. Once taxes are lowered and regulations become less difficult to meet, the state may have a chance at competing against illegal operations. But as it stands, the previous year was not a promising indicator of where California’s legal pot industry is headed.

One Year Later: Why California’s Cannabis Industry is Falling Short of Expectations was last modified: January 9th, 2019 by Macey Wolfer

Macey is a freelance writer recently moved to Seattle, Washington. When she’s not writing articles, she is playing bass in her band or at a show. She also enjoys making poems and short stories, and helping friends with their creative projects.